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On Monday, 21 May US President Donald Trump signed a new executive order aimed at prohibiting certain oil-related transactions with Venezuela. This new sanction package is however symbolic in comparison to the more targeted sanctions previously considered that would limit exports of Venezuelan crude oil to the United States and reduce imports of diluent from the United States into Venezuela.

After all tougher sanctions might not be necessary anymore. The crude oil production of the country is experiencing a steep decline estimated at a loss of approximately 500mbd during the last seven months. This decline is expected to worsen throughout 2018 and imposing sanctions targeting crude production could accelerate the collapse of the country’s economy causing deeper harm to its population. Also, in the wider oil market context, there is a concrete risk of lower oil supply available to match oil demand growth by the end of 2018, and therefore more constraints to the Venezuelan oil output would be counterproductive to the stability of the market.

Crude oil production in Venezuela is practically falling at an average of 10% every quarter since mid-2017. A scenario with oil production in the country losing at least another 500mbd by the end of the year is not unrealistic. Having full additional sanctions imposed would certainly send a strong geopolitical message from the US at the risk of generating more instability in the world supply markets. Sanctions directly targeting Venezuelan crude exports would surely limit PDVSAs finances to few revenue-generating alternatives and maintain the country’s oil sector on the path of continuous underinvestment.

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By GlobalData